Which of the following statements regarding the Law of One Price is INCORRECT?
A)An important property of the Law of One Price is that it holds even in markets where arbitrage is not possible.
B)At any point in time, the price of two equivalent goods trading in different competitive markets will be the same.
C)One useful consequence of the Law of One Price is that when evaluating costs and benefits to compute a net present value (NPV), we can use any competitive price to determine a cash value, without checking the price in all possible markets.
D)If equivalent goods or securities trade simultaneously in different competitive markets, then they will trade for the same price in both markets.

Question

Quizplus · Accepted Answer

The Law of One Price assumes the possibility of arbitrage to ensure that prices of equivalent goods or securities are the same in different markets. If arbitrage were not possible, price differences could persist without being eliminated by arbitrageurs.

Which of the Following Statements Regarding the Law of One